Short answer
A letter of credit or SBLC has no single price. Its cost is the sum of bank commissions (issuance and, where relevant, confirmation, advising, amendment, payment and discrepancy fees) plus the cost of any collateral or cash margin the bank requires. Commissions are usually quoted as a percentage of the amount per period, with a minimum, and depend mainly on the applicant’s credit standing, the tenor and country risk.
Key points
- The issuance commission is normally quoted as a percentage of the instrument amount per month, quarter or year, usually with a minimum charge.
- A confirmation commission is priced by the confirming bank on the risk of the issuing bank and its country, not on the applicant.
- Collateral or cash margin can cost more than the fees themselves, because the money stays blocked for the life of the instrument.
- Under UCP 600 (article 37), if charges meant for the beneficiary cannot be collected, the issuing bank remains liable for them, and will look to the applicant under its agreement.
- Discrepant documents usually trigger additional fees and can delay payment.
- Banks invoice their fees after onboarding and approval. An upfront “fee” paid to an unknown intermediary to “secure” an instrument is a red flag.
What are you paying for?
When a bank issues a letter of credit (documentary credit) or a standby letter of credit, it takes on an irrevocable payment commitment on behalf of its client. The fees pay for that commitment, for the bank’s credit risk on the applicant, and for the operational work: issuing the SWIFT message, examining documents, handling amendments and making payment.
Each bank in the chain can charge for its own role. A simple credit may involve only the issuing bank and an advising bank. A confirmed, transferable credit with a reimbursing bank involves more parties, and therefore more lines on the final bill.
Because the price depends on who you are, what you trade and where, no honest adviser can quote a fixed cost before the issuing institution has reviewed the file.
What are the main fees on a documentary credit?
The table below lists the charges you will most often see. Names vary from bank to bank, and not every credit attracts every charge.
| Charge | Charged by | Usually quoted as | Commonly borne by |
|---|---|---|---|
| Issuance (opening) commission | Issuing bank | Percentage of the amount per period of validity, with a minimum | Applicant |
| Amendment fee | Issuing bank, and advising or confirming bank | Flat fee; an increase in amount or an extension of validity is usually charged as extra commission | Party requesting the amendment |
| Advising fee | Advising bank | Flat fee | Beneficiary |
| Confirmation commission | Confirming bank | Percentage per period, priced on the issuing bank and country risk | Beneficiary, unless agreed otherwise |
| Document examination, payment or negotiation fee | Nominated, confirming or issuing bank | Percentage with a minimum, or flat fee | Depends on the bank and the credit terms |
| Acceptance or deferred-payment commission | Issuing or confirming bank | Percentage per period until maturity | As agreed in the credit |
| Discrepancy fee | Bank handling a discrepant presentation | Flat fee per presentation | Beneficiary, usually deducted from proceeds |
| Transfer fee | Transferring bank | Flat fee or percentage | First beneficiary |
| SWIFT, courier and reimbursement charges | Each bank involved | Flat fees | As set in the credit |
Example (illustrative): an importer opens a sight credit, confirmed by a bank in the exporter’s country. The importer pays the issuing commission and its bank’s SWIFT charges. The exporter pays the advising fee, the confirmation commission and, if its documents contain discrepancies, a discrepancy fee deducted from the payment.
How is an SBLC or bank guarantee priced?
A standby letter of credit or a demand guarantee is usually priced as a commission on the full amount for the whole period it remains valid. Banks typically charge it per quarter or per year, often in advance, with a minimum.
- Validity drives cost. The longer the instrument is outstanding, the more periods are charged.
- Automatic extension clauses (“evergreen” wording) keep the commission running until the bank is formally released, for example by expiry without renewal or a written release from the beneficiary.
- Counter-guarantee structures add a second layer: the local bank that issues the guarantee to the beneficiary charges its own commission, on top of the commission of the bank that issues the counter-guarantee.
- A drawing turns the contingent commitment into a debt: the applicant must reimburse the bank, usually with interest from the payment date.
Example (illustrative): a contractor obtains a 12-month performance SBLC, with the commission charged quarterly in advance. The bank charges four quarterly commissions. If the project runs late and the beneficiary requests a three-month extension, a fifth quarter is charged. Whether any commission is refunded on early return depends on the bank’s terms; it is not automatic.
Collateral and cash margin: the cost not shown on the fee schedule
Before issuing, the bank must be comfortable that the applicant can reimburse it. It may do so by approving a credit line based on the company’s financials, or by asking for security: a cash margin (a deposit blocked for part or all of the amount), a pledge of deposits or securities, or other collateral.
Cash margin often makes the bank’s decision easier, but it is not free. Money blocked for the life of the instrument cannot be used as working capital, and that opportunity cost should be added to the fees when you compare offers.
Example (illustrative): an importer without a credit line asks for a six-month credit. The bank offers to issue against a full cash margin. The commission may be lower because the bank’s risk is covered, but the full amount is blocked until the credit is paid or expires. A partly secured facility may cost more in fees and take longer to approve, yet free up cash.
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Discuss your transactionWhat drives the price up or down?
- The applicant’s credit standing: financial statements, track record, existing facilities and relationship with the bank.
- Security: the level and quality of collateral offered.
- Amount and tenor: validity period, plus any usance or deferred-payment period.
- Country and bank risk: decisive for confirmation, which prices the issuing bank and its country.
- Type of instrument: sight or usance, transferable, revolving, standby or demand guarantee.
- Wording: non-standard or one-sided wording (for example, payment on simple demand with no expiry) means more risk and more review.
- Compliance profile: goods, routes and counterparties subject to sanctions or export-control checks take more work.
- Volume: banks usually price regular, recurring business more favourably than one-off transactions.
Who pays which charges?
The credit itself states how charges are split. In SWIFT MT700 messages, field 71D (Charges) is used for this. A common formula is “all charges outside the issuing bank are for the account of the beneficiary”, but the parties can agree otherwise in the sales contract.
UCP 600 article 37 sets the background rule: a bank that instructs another bank to perform services does so for the account and risk of the applicant, and if a credit says charges are for the beneficiary but they cannot be collected or deducted, the issuing bank remains liable for them. The issuing bank will then recover them from the applicant under its application agreement.
Practical tip: settle who pays the confirmation commission and the discrepancy fees in the commercial contract before the credit is opened. Disputes about charges are a common source of friction between buyers and sellers.
Which fee requests should make you stop?
Legitimate banks invoice their charges under a signed application or facility agreement, after onboarding (KYC) and credit approval. Be cautious if you are asked for:
- an upfront “issuance”, “processing” or “allocation” fee paid to an intermediary before any bank has reviewed your file;
- a percentage of face value to “lease” or “rent” an SBLC or guarantee issued by a bank you have no relationship with (see leased SBLC and bank guarantees);
- payment to a personal account or to a company unrelated to the issuing bank;
- a fixed price quoted without any request for financial statements or transaction documents.
Our guide to trade finance fraud red flags explains how to check a bank and an offer before paying anything.
How Star Alliance helps
Star Alliance reviews your transaction, prepares the file and the proposed wording, and coordinates with the parties and the issuing institutions, so that you can understand each charge and compare offers on a like-for-like basis. Pricing, collateral requirements and the decision to issue always belong to the issuing institution. You can describe your transaction to start a review.
Frequently asked questions
Is there a standard price for a letter of credit?
No. Each bank sets its own tariff, and the final cost depends on the applicant’s credit standing, collateral, amount, tenor, country risk and wording. Commissions are usually quoted as a percentage per period with a minimum, plus flat fees for advising, amendments and SWIFT messages.
Who pays the confirmation fee?
Usually the beneficiary (the exporter), because confirmation protects the beneficiary against the risk of the issuing bank and its country. The parties can agree that the applicant pays instead; this should be written into the sales contract and reflected in the credit.
Do I pay the commission if the SBLC is never drawn?
Yes. The commission pays for the bank’s commitment for the period the instrument is outstanding, whether or not the beneficiary ever makes a demand. If it is drawn, you also owe the bank the amount paid, usually with interest.
Can I get an LC or SBLC without collateral?
Only if the bank approves a credit line based on your financial strength and relationship. Otherwise banks usually ask for a cash margin or other security. Approval also takes time, because it follows onboarding and a review of your financial statements.
Why was a discrepancy fee deducted from my payment?
Because the documents presented did not comply with the credit terms, and the bank charged a fee for handling the discrepant presentation and seeking the applicant’s waiver. Careful document preparation is the best way to avoid it.
Sources
Star Alliance Consulting editorial team · Updated 31 October 2026